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Base-cost renewables: When wind and solar finally kill coal

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Coal generation may have a future in Australia’s energy grid, as prime minister Malcolm Turnbull would have us believe, but it may not be a long one.

It is now clearly recognised, away from the imaginary world of the fossil fuel lobby, that the cheapest form of new generation in Australia – and most other places in the world – is wind and solar, and certainly not coal and gas (or nuclear).

Recently, Bloomberg New Energy Finance predicted that the cost of new wind and solar would soon beat the cost of refurbished coal plants.

coal - graph 10 - BNEF

 

Now BNEF predicts that solar will beat the cost of existing, fully depreciated and unrefurbished coal plants by 2032. And wind will follow soon after.

“Solar is going to beat the cost of existing coal power by 2032,” BNEF’s senior analyst in Australia Kobad Bhavnagri says.

“At that point it will be cheaper to build solar than it is to shovel coal into fully depreciated coal-fired power station.

“That is going to be a critical changing point in energy economics. It is one that was previously unthinkable, it was on no one’s horizon.”

And this is a prediction that will affect not just Australia. It will occur in just about every country in the world, including in China, also in the 2030s, with a stunning impact in energy markets across the globe.

The result of this, Bhavnagri says, will be a shift from the concept of “baseload” to a new concept that BNEF describes as “base-cost renewables.”

Under this system, renewables such as wind and solar will generate at the lowest possible price, and this “base cost” capacity will then be supplemented by more expensive dispatchable generation to fill in the gaps. Overall, however, there will be a much lower wholesale price.

“We are heading towards a completely different operating paradigm one,” Bhavnagri says.

The baseload system that is often touted around “cheap coal” is a bit misleading, because it has always depended on more expensive gas to top up the system demand and meet system peaks. The gas sets the price of generation, and this can be increased by market bidding behaviour.

Future baseload costs - graph 14 - BNEF

 

The new system has cheap renewables meeting demand much of the time, but storage – delivered through batteries and pumped hydro, and other dispatchable generation, as well as demand management and increased efficiency, will fill in the gaps, but at a much cheaper cost than gas.

A recent ANU study put the combined cost of wind and solar and dispatchable generation (in their case mostly pumped hydro) at around $75/MWh, significantly cheaper than current wholesale prices in the market set by gas.

cheap renewable advantage -graph 16 - BNEF

This will have significant benefits to Australia, because as Ross Garnaut has predicted, Australia’s excellent wind and solar resources will mean that it will regain its position as the country with the cheapest cost of energy, which will be a plus for its manufacturing.

“Australia will match China and India in having the lowest cost renewables,” Bhavnagri says. “Australia will again become a focus for heavy industry and energy intensive industry.

And, he suggests, Australia will have significantly more renewable energy than contemplated in the Finkel Review, with NEM capacity - graph 17 - BNEF

 

   

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  • trackdaze

    Duplication of paragraphs above and below 3rd graph.

    Energy is not going to be cheap with network (government) costs representing 50% of the cost.

    • solarguy

      It depends on the size of your bill if it represents 50% of the cost. The networks will have to reduce their greed if they and the grid is going to stay relevant.

      • Roger Brown

        My last Credit Bill , I used 460 kWh(qld)(.4 tonne emissions ) =$107.00 , my fixed charges was $107.20. I exported 697kWh @ .50cents kWh. I also have solar hot water.

    • Damien Ashdown

      This is also assuming the solar is not installed on the roof of the shop (behind the meter) using the power, eliminating most of the network component

      • trackdaze

        Both residential and Commercial still get charged a network or access to it fee in some markets.

    • Alastair Leith

      Networks may well have to write down assets in the future, privately owned or government owned, and reduce access fees, or face grid defection. Not likely while the mess of AEMC, AEMO, and other regulatory and price fixing authorities continues, admittedly.

  • Brunel

    Electricity will be cheaper in the sunny Middle East. So the Middle East can be a hot bed for manufacturing.

    Tibet might be a good place to put up solar panels given the elevation.

    Land is plentiful in Saudi Arabia and they can demarcate

    • Brian Tehan

      Australia has advantages over most of the Middle East as a base for manufacturing. Things like government stability, rule of law, highly skilled workforce, infrastructure, etc, etc.

      • Brunel

        Ironic. AUS had 5 prime ministers in five years.

        Unfortunately the previous Labor government dumbed down Aussie degrees.

        Infrastructure is bursting at the seams.

  • Mark Roest

    I used a ruler to estimate 13.3 GW of storage is estimated. Since it is an ‘energy mix’, one could assume that the daily use is 13.3 x 24 hours, or 320 GWh, but since we use less at night, that’s a really risky assumption.
    So, does anyone know what the number is? I.E., how many GWh of storage capacity is assumed, and what is the assumed cost per GWh or kWh of capacity?
    It would be truly ideal if someone can also do an hour-by-hour simulation with batteries at $100/kWh capacity and 1 cent per kWh levelized cost, and wind & solar at about 40 cents a Watt.
    That would facilitate planning the least-cost approach to meeting Australia’s needs in a 100% renewable regime, and show the total cost of energy to society.
    E.g. if the right amount of storage is 320 GWh, that’s about 32 billion US dollars. By the time all this starts to happen, it should have a 20- to 70-year useful life.

    • Ray Miller

      Mark, to add to the complexity other solutions can be used. Do not assume we need just GWhs on the NEM e.g. anything from refrigeration, hot water storage, thermal stores for space heating, ice for space cooling, more thermally comfortable building, time shifting usage etc. So I see a range of solutions, the closer to the load the better (less losses and more reliable). So then the hour by hour answer has more options to optimise the use of renewables and can also match the characteristics of the various energy conversion plants. We need more working like an orchestra then a fight ring to operate our massive and complex machine (energy system) at least cost and lowest carbon emissions.

      I think the most obvious solutions (to me at least) would be to mass produce substation battery storage to achieve a range of benefits and flexibility, as well as simplicity of management and low losses.
      While storage at home may seem attractive, storage at remote renewable site intuitive, the optimised most benefit, most resilient and least cost answer is likely to be more local at the substation.

      • Mark Roest

        We can do substations where that’s easiest, but consider that if the utility owns it, the utility makes the profit, whereas if the user owns it, the user takes full savings, or takes the profit from selling to others.
        Yes, batteries can be used as a buffer for any kind of generation.

    • Greg Hudson

      Lets just say that $32b is correct… It is STILL less than the cost of the NBN debacle !

  • Cooma Doug

    Products and opportunity are going to appear soon. I’ve seen it before and after watching the FCAS market sprout unexpected things, I can already see huge opportunity. So at risk of being seen as some kind of nut (as happenned previously when discussing the market 20 years ago) let me toss around a few possibilities.
    There are high density dwellings designed for efficiency and energy sharing . They use remote renewables as well as locally installed solar and battery. This has reduced consumption over 30% if compared to building complex 20 years older.
    But many of these advantages could also be acheived by stand alone homes and business. It is a matter of what buildings or business one may co ordinate. The dwellings can be any where on the grid.
    Homes have different consumption times and load profiles for many reasons. You can co ordinate the profiles to better utilise solar, battery and load shifting options. You could flatten load profiles of a group across the entire day with the appropriate combination.

    Soon after thinking down this track we realise that we dont have to drop off the grid. We can seek out opportunity on the entire grid. The cost of our needs will reflect our contribution. Going off the grid, snipping the wires and yelling out scam scam might just be a really bad choice.

    A home just like a 1970s home is fine. Sure they have no contribution possible apart from taking excess energy if they have a way to do it and perhaps the hot water might help.
    But they will endure greatest cost. They will provide least to the grid and cop the highest wholsale prices.

    They will have opportunity and motivation to integrate and adjust to be a contributing player. As each home does this, the need for grid infrastructure reduces. The need for infrastructure in each home reduces. Co-ordinated islands of consumers increasing their energy self efficiency as technology invades the grid.

  • MrMauricio

    Way before the curves cross the problem of sinking huge investments into an expensive uncompetitive long lived asset will dictate where new generation dollars are spent

    • baseload renewables

      Yes, that time is arriving very soon. Maybe it’s already past?

      • Alastair Leith

        past in developed countries and China and India knocking on the door.

  • Peter F

    Without going into detail, it seems to me that most Australian coal plants have long term low cost contracts for coal. Once they have to compete with exports for coal at around US$60-80/ton they are already uncompetitive. Remember that US coal ranges from $11 to 48/ton.
    Then there is the avoidable cost issue. If power prices are below $40, a wind plant is still $30 or so better off by selling vs not selling. Solar $35 even without RECs. At that price a coal plant is just sending money up the stack so if it is a short term peak and wind and solar is available coal loses every time, forcing down CF and forcing up its breakeven

  • Michael Harvey

    I don’t understand.
    Yesterday the renewable economy had an article saying renewables are already cheaper.

    Now it’s 2032 ???

    I’ve seen articles saying baseload is a fallacy.

    Then the next week an experiment of try to synchronise windturbines to use as baseload.

    Which is it here ???

    • Peter F

      The existing coal plants benefit from long term low cost coal supply contracts and have already paid off their construction so they sell power with a small provision for maintenance, direct operating costs and cheap coal. Together these can be less than 1/3rd the cost of a new plant paying about $250m per year in interest and depreciation, export price for coal, being maintained for 40-50 year life

    • Farmer Dave

      Michael, the distinction to watch out for is the cost difference between solar and wind, and either new coal or existing coal. Previous articles have compared solar and wind with new coal plants, and solar and wind are already cheaper; this article compares building and operating new solar and wind with just operating existing, fully paid for coal plants, and predicts that sometime in the next two decades even existing coal plants will not be able to compete on cost with building and operating new solar and wind. So the distinction is between new and existing coal plants; new ones are already out of the money, and it’s predicted that existing ones will also be out of the money in the next two decades. This is truely a revolution.

      • Greg Hudson

        To elaborate further on this, you only have to look at the closure of Hazelwood (brown coal/lignite burning) power station. Even WITH a cheap source of coal, the cost of maintenance still made it uneconomical. If solar and wind were not there pushing prices down, Hazelwood would have probably lasted a lot longer. The same issue is going to happen to ALL the other coal power stations eventually. AGL seems to be aware of this, and appears to be gaming the system (IMO) as much as they can, but hedging their bets by building/using as much solar as they can lay their hands on (apparently). My impressions may be wrong, so please correct me anyone…

    • Alastair Leith

      NOt sure what you mean by experiment to “synchronise wind turbines to use as baseload”? But baseload is just the base load part of the demand curve. Everything below the daily demand minimum, which coal called it’s own because it likes to chug away at maximum power and can’t follow the load up and down the demand curve. Wind on the other hand can’t produce more than what the wind is providing for but is very quick and accurate in curtailing generation, so it there is enough wind capacity available on a grid it can be used to follow provide not just below the daily demand minimum level but above it also. Hope that makes sense. More explanation in the latest AWEM Whitepaper “Renewable Energy Builds a More Reliable and Resilient Electricity Mix” and under “1. Don’t we need need baseload?” section.

    • Alastair Leith

      And all these comparisons seem to be comparing without taking into account the cost of damage to the environment and public health.

      A recent paper found that replacing all the coal plants in USA with PV would save 51,999 lives a year from air quality deaths associated with burning coal. The surprising thing was they found it could be done at a negative cost per death, saving several million dollars per death avoided. Lives are often valued at around US$1.1 for such studies apparently.

      Climate damage from coal is anybody’s guess.

    • neroden

      Renewables are already cheaper than any NEW fossil fuel plant.
      Being cheaper than PAID-OFF fossil fuel plants is going to take a few more years.

  • Don McMillan

    15 years – what do we do in the meantime.

  • Robert Engle

    I wonder at how the operations costs of coal never go up. Tech advances will help them some on generating more with less but not enough.

    Just factor in the liability expenses that are all external now. I hope by 2040 we have managed to force them to take at lease some of them onboard.

    Then there is the ramping down of a lot of the generators. The huge increase in #s created efficiencies that are going to start evaporating as the worst plants retire. It might take losing 1/2 the existing fleet to turn that cost equation but with so much coal in the 1st world built in the 80’s they will get retired from age if no other reason before they hit 50.

    • Alastair Leith

      the more efficient coal plants become the worse they are at ramping. And the worse they ramp the less C.F. they can count on as the solar duck starts dropping summer midday zero demand minimums by 2023-28.

  • Ian

    Simples, says the Russian meerkat. Cheap electricity = manufacturing competitiveness.

  • neroden

    See that idiotic change in the solar price curve? BNEF is lowballing. If you project the current price curve for solar out, you find that this happens in 2024

  • Ant..

    The non-renewable energy source comes at a cost [Commissioning + Mining + Transport + Ash Disposal + De-commissioning] where as the renewables energy source come at no cost provided it remains free to use for the life of the asset. So setting aside the cost to get in, cost to stay in and cost to get out which technology is likely to trump which technology in its capacity to meet demand at a cheaper cost for the energy it produces during its start to finish life cycle?